Fitch Ratings has assigned a 'AA' rating to the Maryland Community Development Administration's (CDA) $40 million residential revenue bonds, 2008 series E and F. Additionally, Fitch has affirmed the 'AA' rating on the CDA's outstanding $2.31 billion in residential revenue bonds. The 2008 Series E and F bonds are expected to be available for delivery on or about Nov. 24, 2008.
The current offering is the 39th sale of bonds under the general bond resolution adopted in August 1997 and amended in July 2005. Proceeds from the 2008 series E bonds ($21.5 million) will be used to refund certain of the CDA's drawdown bonds. Following the refunding, amounts on deposit in the escrow fund under the drawdown indenture will be transferred to this resolution. The transferred funds, along with the proceeds from the 2008 series F bonds ($18.5 million), will be used to purchase new mortgage loans to continue CDA's single-family, first-time homebuyer program and to fund a reserve.
The long-term 'AA' rating on the 2008 series E and F bonds reflects the current portfolio composition, the inclusion of primarily fully insured or guaranteed loans, strong underwriting guidelines and mortgage insurance requirements, adequate reserve and liquidity levels, and the administration's track record and established program oversight abilities. The CDA intends to maintain the program at a minimum asset to liability ratio of 102%. The consolidated cash flow statement filed in conjunction with the 2008 series E and F issuance demonstrates sufficient asset parity in stressed prepayment and loan loss scenarios. The 2008 series E and F bonds are on parity with all outstanding bonds under the resolution.
Of the total amount of debt outstanding under the indenture prior to this issuance, $393 million, or 17%, is in the variable-rate mode, $312.4 million of which is swapped to a synthetic fixed-rate with three counterparties: Bear Stearns Financial Products, Inc., UBS AG. and Merrill Lynch Derivative Products AG.
All loans purchased under this issuance will be for single-family homes insured by the Federal Housing Administration (FHA) or guaranteed by the U.S. Department of Veterans Affairs (VA) or the U.S. Department of Agriculture through its Rural Development Guaranteed Rural Housing Loan Program (RD), or insured by private mortgage insurers. VA and RD loans are not expected to constitute a significant share of the portfolio. Additionally, the Maryland Housing Fund (MHF) will not be insuring any new loans, which includes those from this issuance.
As of June 30, 2008, 12,031 loans with an aggregate principal balance of $1.87 billion were outstanding under the residential revenue bond program. There has been a shift in the portfolio composition from a majority of FHA-insured loans to a greater percentage of privately-insured mortgages. As of June 30, 2008, the portfolio was comprised of: 33% FHA loans, 3% VA loans, 1% RD loans, and 61% privately-insured, with the remaining 2% uninsured or insured by the MHF.
Of the total loan portfolio, 44% are products other than a 30-year amortizing loan, the majority being five-year interest-only loans with 30-year amortizations (all mortgages are fixed-rate Of the privately-insured loans, Mortgage Guaranty Insurance Corp. (rated 'A-' as of Oct. 17, 2008; Rating Outlook Negative by Fitch) and United Guaranty Residential Insurance Corp. (rated 'AA-' as of Nov. 10, 2008; Rating Outlook Negative by Fitch) constitute the highest percentage of the insurance providers at 49% and 23% of the privately-insured loans, respectively.
The loan portfolio is still performing satisfactorily compared with FHA loans in the state of Maryland. In the RRB program, 4.3% of loans were 60 days or more delinquent as of June 30, 2008, compared with 6.15% for FHA loans in the state. It should be noted that RRB program loan delinquencies have risen to 5.97% as of Sept. 30, 2008. Data for FHA loans in Maryland for the same period is not yet available. Risks include: the portfolio's lack of seasoning and high percentage of interest only loans; changes to the credit quality of the mortgage insurance providers that support the privately-insured loans; the geographic concentration; and the permitted financing of various loan products. CDA is a division of the state's department of housing and community development.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.